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• Slowing tax revenue and rising government spending on food security and universal health threaten to send the fiscal deficit skyrocketing next year. To check this, many experts want to raid the surpluses of public sector undertakings (PSUs).These surpluses have ballooned thanks to a global commodity boom hugely benefiting mineral-producing PSUs, such as ONGC, Coal India, NMDC and Oil India. These profits are unearned windfalls. They should not be frittered away in current government spending.Part of the windfall should be conserved for future generations, in the manner than Norway, Chile, Kuwait and Saudi Arabia have done through sovereign wealth funds. T V Mohandas Pai and Gautam Seshadri wrote an article in this space calling for a massive special dividend to be paid by PSUs (Why Borrow? Reward Yourself, ET, Dec 16).
• They said that the four big mineral producers plus Bhel could easily pay special dividends totalling Rs 53,000 crore. This would not jeopardise their future investment plans. Others have suggested two variations on this theme. One is a buyback of shares by PSUs. The second is for PSUs to use their surpluses to buy out minor stakes of the government in other PSUs.Both schemes would transfer PSU surpluses to the Budget. However, raiding surpluses is just one more way of selling family silver to meet current budgetary expenses. This is not a way of balancing income and spending. Such one-off sales can be justified in difficult times, yet need to be recognised as ways of temporarily funding the deficit rather than reducing the deficit.
• Treating asset sales as revenue is an accounting trick to persuade unwary observers of the soundness of a sinking budgetary ship. The public sector is no paragon of efficiency in India. The overwhelming bulk of state government PSUs are sick or closed. Central PSUs have done far better, but they too typically withered when faced with private sector competition.The Cement Corporation cannot compete with private cement companies, Hindustan Paper Corporation cannot compete with private paper companies, BSNL and MTNL cannot compete with private telecom players. How then have some PSUs generated massive profits?Answer: the surpluses are, overwhelmingly, windfalls from a global commodity boom. The price of oil, for instance, has risen from $18 a barrel in the late 1990s to over $100 a barrel today. Coal and iron ore prices have risen almost as fast.Before 1991, price controls kept domestic mineral prices well below global rates, and public sector profits were modest. But the freeing of price controls, plus the global boom, has produced a windfall. The recent depreciation of the rupee by 20% will boost the windfall further. The big four mineral-extracting PSUs have cash in hand of Rs 1,15,000 crore. This does not reflect any great efficiency on their part.

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